Although it goes against conventional thinking, there are many reasons why you should consider launching a small business during a recession. If you have a great idea and a strong work ethic, the state of the economy should have little or no effect on your plans. In fact, by starting a business during an downturn, you may even reduce your startup costs and the odds that you’ll face stiff competition.
Here are six tips for starting a small business during a recession:
- Write down your financial plan. Preparing an organized, concise, and comprehensive financial plan allows you to thoroughly examine every aspect of your business. This is also necessary if you plan to request funds from investors. Your financial plan should include a list of startup and operational expenses and how you plan to fund them. Be sure to include financial projections and budget forecasts, such as the estimated time your business will need to become profitable, and the goals and benchmarks that you’ve set for yourself to track your progress and to adjust your plan as needed.
- Create a marketing strategy. People still spend money in a down economy — they just do it more judiciously. Identify your target market with pinpoint accuracy. Next, add your preferred tactics (such as direct mail, social media, and radio or TV advertising) to the plan. Include free tools, such as business listings on CitySearch and Yelp. You’ll want to track the progress of each marketing initiative to determine what works for your business.
- Determine your need for outside funding. Decide at the outset whether your venture needs funding from external sources. If you need money, consider turning to banks, private investors, or institutional investors; you can take advantage of lower interest rates during a downturn. If you have trouble getting a bank loan, try peer-to-peer lending sites like Lending Club and Prosper. (I launched my online reselling business with as much of my own startup capital as I could to reduce my reliance on investors.)
- Choose a growth strategy. Overly aggressive small-business growth strategies can cause problems for a new business during a recession. Consider waiting until your business has a steady income stream before mulling growth and expansion.
- Save money. In a down real estate market, you can purchase inexpensive construction materials, and you can rent office space for a greatly reduced price if you find a landlord with an unoccupied property. To reduce payroll expenses, do as much as you can yourself — or negotiate with contractors in need of work. Consider bartering for services to further trim expenses. For example, I did some home-improvement projects for a friend who helped me develop my website for free. I also paid close attention to the local news, and spoke with friends and family members about other ways to save money. Through my research, I learned a local business planned to close, and I bought all the office furniture I needed for a drastically reduced price.
- Work hard and stay passionate. If you have a business idea that you truly believe in, a strong work ethic, and a love of what you do, the state of the economy should not matter to you. The days of working long hours don’t have to last forever, and when you find success, you will enjoy the fruits of your labor and the benefits of small-business ownership for years to come.
Don’t let the overall economic state deter you from following your dreams and launching a small business. Succeeding despite recession will make you better prepared to prosper in any economic climate, meaning that you won’t be in the unenviable position of requiring a strong economy for your business to thrive.